BANK HANDLOWY W WARSZAWIE S.A. 3Q 2013 consolidated financial results November 7, 2013
3Q 2013 in Citi Handlowy summary Gains on sale of AFS FX & trading 86 1 85 2011: PLN 333 MM -17% YoY Financial Markets Treasury result (PLN MM) 2012: PLN 651 MM 96% YoY Sector: 14% 9M 2013: PLN 551 MM 11% YoY Sector: -6% Sector: -9% 56 10 46 100 8 91 11 92 80 190 73 117 147 159 155 46 63 98 101 61 93 293 172 198 81 121 117 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 60 32 28 Extraordinary gains in 2012 and 2013 under favorable market conditions Profits significantly above the sector level Retail Banking distribution system transformation Smart Banking Ecosystem development in response to changing customer behavior model and the dynamic growth of new technologies Modern banking outlets 25 Smart branches in the largest agglomerations until 2014 Digitization Productivity improvement A further focus on relationships with affluent (Gold) and emerging g affluent (Forward) clients Efficiency improvement (Cost / Income ratio of Retail Banking < 60% in 2016) employment restructuring Strategic business areas growth Customer assets growth (net loans in PLN B) +20% +10% +7% Sector: +15% Sector: +1% Sector: +4% 16.2 16.8 15.8 14.7 12.3 Focus on operating accounts (demand deposits in PLN B) +5% +8% +15% Sector: +6% Sector: +3% Sector: +23% 12.6 13.2 14.3 12.4 14.3 Corporate clients & financial institutions 6.9 9.6 11.0 10.6 11.6 Corporate clients & financial institutions 8.3 8.5 9.4 7.6 8.5 Individual clients 5.3 5.1 5.3 5.2 5.2 2010 2011 2012 3Q 2012 3Q 2013 Individual clients (current and saving accounts) 4.7 4.8 4.9 5.8 2010 2011 2012 3Q 2012 3Q 2013 2
Corporate Banking in 3Q 2013 FX turnover Financial Markets The best quarter in terms of FX turnover this year FX turnover volume up by 13% QoQ and 21% YoY Brokerage #1 in equity turnover on the WSE (12.4% market share in session trades) Leader in custody services Assets under custody up by 4% QoQ and 19% YoY 47% market share as of the end of 3Q 2013 (vs. 45% as of the end of 3Q 2012 and 47% as of the end of 2Q 2013) Cash management Transaction services Focus on operating accounts: growth of demand deposits by 1% QoQ and 23% YoY #2 in Poland in the Euromoney Cash Management Survey 2013 Express Elixir immediate transfers launched for corporate clients in August Trade finance growth Increase in assets of 4% QoQQ and 13% YoYY 20% growth of factoring turnover: over PLN 4.5 B turnover in 1-3Q 2013; #3 among banks offering factoring products Growth in Supplier Finance over PLN 300 MM newly assigned limits in 3Q 2013 Lending volumes Local Commercial Banking A further assets increase in SME/MME segment: +2% QoQ and +14% YoY Value of Program with KfW for financing SME and MME clients investments in energy efficiency increased from EUR 10 MM to EUR 35 MM SME and MME clients acquisition 100 clients acquired in 2013 - client acquisition growth of 11% YoY Lending volumes Corporate and Global Clients Growth of assets in Corporate Clients segment: +13% QoQ and 9% YoY; Global Clients segment: -5% QoQ; +5% YoY Emerging Markets Champions Programme Clients support in international expansion: services for Strategic Clients in 15 countries, incl. U.A.E, US, Canada, Chile, Norway Bond issue #2 position as a bond and deposit certificates issue organiser for banks (25% market share according to the Rating&Rynek report of Fitch Ratings agency) 3
Retail Banking in 3Q 2013 Relationship banking Focus on Gold and Forward clients Growth in the number of Gold active clients (assets min. PLN 200,000) of 3% QoQ and 19% YoY Growth of active Forward clients acquisition of 30% QoQ and 77% YoY Citi Handlowy for clients with saving and investment needs CitiFX Pro new advanced investment platform for individual clients of DMBH Increase in the number of investment profile clients by 7% QoQ and 108% YoY Growth of investment products volume of 4% QoQ and 13% YoY Credit cards Leading position maintained #1 in terms of transaction volume 22% market share as of 2Q 2013 Growth of transaction volume by 4% QoQ and YoY #1 in terms of credit card loans 19% market share as of the end of September 2013 Increase in credit card loans by 1% QoQ Credit cards acquisition iti Growth of acquisition by 13% QoQ and 14% YoY for basic cards Citibank World and Citibank Wizz Air cards consistently as key drivers of acquisition Global services Innovative solutions for clients Smart Banking Ecosystem First Smart branch launched in Katowice Citibank Global Transfers - immediate outgoing transfers Waiting time shortened: Providing customers with assistance when setting up a bank account or Citigold recognition in Citi branches globally. Mobile Banking Mobile application for ipad launched in September 160 thousand Citi Mobile users (increase by 12% QoQ and 65% YoY) Growth of active Citi Mobile users of 10% QoQ and 72% YoY 22 minutes the average time to open a personal account with a debit card (the shortest time so far: 9 minutes) 70 minutes (target: 30 minutes) the average waiting time for credit card 70-80% transactions concluded so far at the service desk have been offloaded to self-service channels Sales results traditional branch vs. Smart branch (the first month of operation) Product Credit cards (#) Citigold accounts (#) Citiforward accounts (#) Smart branch vs. traditional x2 x6 x4 4
Net profit in 3Q 2013 YoY change /PLN MM/ -34% Sector: -10% 64.0 1.2 99.0 251.2 6.2 24.0 20.7 25.0 Revenues total: PLN -155.7 MM / -23% Sector: -6% 165.2 3Q 2012 Net interest income Net fee & commission income Treasury Other net revenues Expenses Net impairment losses Tax and other 3Q 2013 Net interest Net fee & Treasury Expenses and Net impairment income commission result depreciation losses income 17% YoY Sector: 6% 1% YoY Sector: 2% 62% YoY Sector: 21% 7% YoY Sector: 1% 93% YoY Sector: 20% 5
Net profit in 9M 2013 YoY change +13% /PLN MM/ 17% Sector: -8% Sector: -2% 11% Sector: 0% 74.3 Sector: -24% 15.4 725.6 193.1 6% Sector: -1% 26.6 11% Sector: -8% 55.0 21.6 Revenues total: PLN -89.9 MM / -4% Sector: -6% 126.4 821.0 9M 2012 Net interest income Net fee & commission income Treasury Other net revenues Expenses Net impairment losses Tax and other 9M 2013 Bank ROA ROTE ROE Cost/ Income Loans/ Deposits Tier 1 2.4% 20.5% 16.5% 50% 72% 16.7% 6.7% NPL Sector 1.0% 11.6% 11.4% 53% 108% 14.2% 7.5% 6
Net interest income under pressure after interest rates cuts Net interest income (PLN MM) Net interest margin (NIM) - Bank vs. sector 1,137-17% Sector: -8% Citi Handlowy 4.5% 3.8% 3.8% 3.2% 3.4% 2.9% 370-17% Sector: -6% 944 306 3Q Sector 2.8% 2.5% 2.4% 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 NIM on total assets NIM on interest-bearing assets 1H Slowdown in negative dynamics of net interest income in 3Q 2013 (- 17% YoY and -1% QoQ) Net interest margin, despite the decline to 2.9%, still significantly above the market 9M 2012 9M 2013 7
Net fee & commission income increase driven by the capital markets Corporate Banking +18% YoY Net fee & commission income (PLN MM) 455 152 +6% Sector: -1% +1% Sector: +2% 482 153 3Q Transaction Banking, incl. trade products -5% YoY Custody +15% YoY 47% 27% 22% 5% Other, including M&A advisory +138% YoY Brokerage +116% YoY Retail Banking -3% YoY 1H Investment & insurance products +14% YoY 44% 48% Credit cards -14% YoY 9M 2012 9M 2013 Other 7% 1% -0.1% YoY Cash loans -24% YoY 8
Consistent cost control Expenses and depreciation (PLN MM) Expenses and depreciation (PLN MM) by type -7% 1,115-11% Sector: 0% 989 337 16 57 25 32 51 313 17 46 24 31 49 Change YoY 10% -19% -6% -3% -4% Depreciation Other Premises External services IT & Telekom. 337-7% Sector: +1% 313 3Q 156 146 3Q 2012 3Q 2013-6% Staff expenses 1H The YoY decrease in Bank s expenses mainly due to: the branch network optimization and employment restructuring (the decrease in staff and premises expenses) lower advertising & marketing spending and lower telecommunication & IT expenses Cost / Income ratio at 50% after 9 months of 2013 9M 2012 9M 2013 9
Further improvement in credit risk Net impairment losses (PLN MM) Non-performing loans ratio (NPL) (60) (45) (57) (22) 13.4% 11.9% 11.5% (30) (15) 8.2% 5.7% 6.9% 6.7% 5.4% 5.1% 0 (2) 15 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 17 30 9M 2012 9M2013 Provision coverage ratio 1H 3Q NPL ratio at 6.7%, down both in QoQ and YoY terms driven by better loan portfolio quality in retail and corporate customers segments Provision coverage ratio remaining at a high level of 80% 90% 80% 65% 85% 85% 79% 80% 71% 72% Annualized cost of risk significantly below the sector in 3Q 13 (-0.1% vs 0.9% in sector) 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 Bank Corporate Banking Retail Banking 10
Change in Citi Handlowy s share price in the latest 12M horizon Citi Handlowy s share price vs. main indices 140 Return on investment in the Bank s shares +34% (an increase in the Bank s share price of 27% + 7% DY) (WIG Banks increase of 33%, 130 WIG20 increase of 9%) 120 Share price (PLN) 110 100 90 80 70 June 20: Management Board s decision on dividend payout at the level of 75% from 2012 net profit Citi Handlowy WIG Banks WIG 20 July 5: dividend day Note: The latest listing as of November 6, 2013 (Citi Handlowy: PLN 116.25) Dividend payout ratio Dividends paid by Citi Handlowy since its debut on the WSE 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 23% 31% 39% 64% 100% 100% 100% 100%* 80% 86% 77% 0% 94% 100% 50% 75% Dividend yield 3.1% 1.9% 3.8% 1.7% 2.3% 2.6% 3.1% 18.7% 5.6% 5.8% 4.5% - 7.1% 7.1% 3.3% 7.1% 11 * Payout ratio related only to 2004 net profit, excluding special dividend
Markets in 2014 expectations Macroeconomic environment Continued economic recovery investments and consumption growth Low interest rates first hikes of base rates likely in 2H 2014 at the earliest Unemployment rate decrease Uncertainty surrounding the budget draft for 2014 Pressure on revenue (lower interchange, low interest rates) requiring the expenses discipline Banking sector Stabilisation ti fund fee additionally burdening the banks results Growth of demand for investment and working capital loans Continued recovery in consumer lending (cash loans and mortgage loans) ECM market recovery the postponed transactions execution Financial markets Possible high volatility of Zloty exchange rate and bond yields Further shift from banking deposits towards investment funds Impact of pension system changes on the capital market 12
Appendix
Customer volumes /P PLN MM 10,578 Growth in loans in the environment of limited demand for financing Institutional non-banking customers loans +10% 11,625 Individual customers loans Sector: +% -0.3% Sector: +4% 30% Other SMEs & MMEs (+14% YoY) Global Clients 34% (+5% YoY) Y) /PLN MM 5,239 5,225 20% 38% Mortgage loans (+20% YoY) Cash loans (-7% YoY) 23% 3Q 2012 3Q 2013 Corporate Clients (+9% YoY) 40% 3Q 2012 3Q 2013 Credit cards (-2% YoY) Significant growth in deposits as a result focus on the operating accounts /PLN MM M Institutional non-banking customers deposits +20% 14,609 7,033 17,578 Individual customers deposits Sector: +6% +12% Sector: +7% 9,094 Term deposits (+29% YoY) /PLN MM 6,080 1,218 6,809 973 Term deposits (-20% YoY) 7,576 8,484 Demand deposits (+12% YoY) 4,862 5,836 Demand deposits (inc. saving accounts) (+20% YoY) 3Q 2012 3Q 2013 3Q 2012 3Q 2013 14
Treasury Treasury result (PLN MM) Result on customer operations 293 135 118 190 147 159 155 198 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2010 2011 2012 2013 79 69 86 100 91 56 60 Result on proprietary p management 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2010 2011 2012 2013 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2010 2011 2012 2013 Note: The scales on the graphs are not comparable. Gains on sale of the portfolio in respective quarter (PLN MM) Valuation in the equity as of the end of a quarter (PLN MM) Government bond yields vs. gains on sale of debt securities (PLN MM) 5,45% 4,88% 4,66% 46.1 97.8 62.5 172.0 81.3 32.0 36.33 85.1 257.8 72.1-28.3-68.66 10Y 5Y 2Y 4,20% 3,52% 2,85% 4,95% 4,32% 3,28% Yield change YoY Yield change YTD -38 bps 46 bps -58 bps 30 bps -103 bps -30 bps 15 2Q 2012 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 October 31, 2013
Income statement Bank 3Q13 vs. 2Q13 3Q13 vs. 3Q12 3Q12 4Q12 1Q13 2Q13 3Q13 PLN MM PLN MM % PLN MM % Net interest income 370 351 327 311 306 (4) (1%) (64) (17%) Interest income 532 497 442 412 402 (10) (2%) (129) (24%) Interest t expenses (161) (145) (115) (102) (96) 6 (5%) 65 (40%) Net fee and commission income 152 144 164 165 153 (12) (7%) 1 1% Dividend income 1 - - 4 0 (4) (97%) (1) (88%) Gains on AFS debt securities 98 63 172 81 32 (49) (61%) (66) (67%) FX and trading 61 93 121 117 28 (89) (76%) (33) (54%) Treasury 159 155 293 198 60 (138) (70%) (99) (62%) Net gain on capital investment instruments - - 2 - - - - - - Net other operating income (8) (5) 9 0 (1) (1) - 7 (90%) Revenue 674 645 795 679 519 (160) (24%) (156) (23%) Expenses (321) (300) (331) (318) (296) 22 (7%) 25 (8%) Depreciation (16) (15) (13) (13) (17) (4) 28% (2) 10% Expenses and depreciation (337) (315) (345) (331) (313) 18 (5%) 24 (7%) Operating margin 338 330 450 348 206 (142) (41%) (132) (39%) Net impairment losses (22) (1) (10) 29 (2) (31) - 21 (93%) EBIT 316 329 440 376 205 (171) (45%) (111) (35%) Corporate income tax (64) (85) (84) (75) (40) 36 (47%) 25 (38%) Net profit 251 245 355 300 165 (135) (45%) (86) (34%) C/I ratio 50% 49% 43% 49% 60% 16
Balance sheet key items End of period PLN B 3Q12 4Q12 1Q12 2Q13 3Q13 3Q13 vs. 2Q13 3Q13 vs. 3Q12 Cash and balances with the Central Bank 0.9 1.4 1.0 0.8 2.4 1.7 220% 1.5 160% Amounts due from banks 2.1 1.5 1.4 2.3 2.5 0.2 9% 0.4 19% Financial assets held-for-trading 5.9 6.8 9.2 8.9 6.4 (2.5) (28%) 0.5 8% Debt securities available-for-sale 8.7 15.0 12.0 14.1 15.8 1.7 12% 7.1 81% Customer loans 15.8 16.2 16.3 17.0 16.8 (0.2) (1%) 1.0 7% Financial sector entities 1.2 0.9 1.6 2.4 2.1 (0.4) (15%) 0.9 74% Non-financial sector entities 14.6 15.3 14.7 14.6 14.8 0.2 1% 0.2 1% Corporate Banking 9.4 10.0 9.5 9.4 9.6 0.2 2% 0.2 2% Retail Banking 52 5.2 53 5.3 52 5.2 52 5.2 52 5.2 (0.0) 0) (0%) (0.0) 0) (0%) Credit cards 2.2 2.2 2.0 2.1 2.1 0.0 1% (0.0) (2%) Cash loans 2.1 2.1 2.1 2.1 2.0 (0.1) (4%) (0.1) (7%) Mortgage 0.9 0.9 1.0 1.0 1.0 0.0 2% 0.2 20% Other assets 3.0 2.6 2.8 3.2 3.3 0.1 2% 0.3 9% Total assets 36.5 43.5 42.7 46.3 47.2 10 1.0 2% 10.7 29% Liabilities due to banks 2.6 2.4 5.7 7.1 7.6 0.5 7% 5.0 196% Financial liabilities held-for-trading 4.7 5.8 5.3 4.8 5.4 0.6 12% 0.8 17% Financial liabilities due to customers 20.9 26.9 22.8 25.0 25.4 0.4 2% 4.5 21% Financial sector entities - deposits 2.6 2.8 3.0 4.2 3.9 (0.3) (7%) 1.4 53% Non-financial sector entities - deposits 18.1 20.8 19.1 20.0 20.5 0.4 2% 2.3 13% Corporate Banking 12.0 14.9 12.7 13.3 13.6 0.4 3% 1.6 13% Retail Banking 6.1 5.9 6.4 6.8 6.8 0.0 1% 0.7 12% Other financial liabilities 0.2 3.2 0.7 0.7 0.9 0.3 39% 0.8 418% Other liabilities 1.4 1.1 1.4 2.4 1.7 (0.7) (28%) 0.3 22% Total liabilities 29.5 36.1 35.2 39.33 40.1 08 0.8 2% 10.6 36% Equity 7.0 7.4 7.6 7.0 7.1 0.1 2% 0.2 2.2% Total liabilities & equity 36.5 43.5 42.7 46.3 47.2 1.0 2% 10.7 29% Loans / Deposits ratio 81% 73% 77% 73% 72% Capital Adequacy Ratio 17.6% 18.1% 18.5% 17.5% 16.7% 17
Corporate Banking income statement 3Q13 vs. 2Q13 3Q13 vs. 3Q12 3Q12 4Q12 1Q13 2Q13 3Q13 PLN MM PLN MM % PLN MM % Net interest income 175 164 152 147 147 0 0% (28) (16%) Interest income 306 279 238 220 221 0 0% (85) (28%) Interest expenses (131) (116) (86) (74) (74) (0) 0% 57 (44%) Net fee and commission income 59 61 83 75 66 (9) (13%) 7 12% Dividend income 1 - - 1 0 (1) (91%) (1) (88%) Gains on AFS debt securities 98 63 172 81 32 (49) (61%) (66) (67%) FX and trading 52 84 113 108 19 (89) (82%) (33) (63%) Treasury 150 147 285 190 51 (138) (73%) (98) (66%) Net gain on capital investment instruments - - 2 - - - - - - Net other operating income 1 1 15 5 5 0 0% 4 - Revenue 385 372 536 418 269 (149) (36%) (116) (30%) Expenses (142) (162) (156) (135) (129) 6 (4%) 13 (9%) Depreciation (6) (7) (7) (6) (6) 0 (2%) 0 (4%) Expenses and depreciation (149) (169) (163) (142) (135) 6 (4%) 14 (9%) Operating margin 237 203 373 276 134 (143) (52%) (103) (43%) Net impairment losses (16) (4) (14) (7) 3 10-19 - EBIT 221 200 359 269 137 (131) (49%) (84) (38%) C/I ratio 39% 45% 30% 34% 50% 18
Retail Banking income statement 3Q13 vs. 2Q13 3Q13 vs. 3Q12 3Q12 4Q12 1Q13 2Q13 3Q13 PLN MM PLN MM % PLN MM % Net interest income 195 188 175 164 159 (5) (3%) (36) (18%) Interest income 225 217 204 192 182 (10) (5%) (44) (19%) Interest expenses (30) (30) (28) (28) (22) 6 (21%) 8 (27%) Net fee and commission income 93 83 81 90 87 (3) (3%) (6) (6%) Dividend income - - - 3 - (3) (100%) -- FX and trading 9 8 8 9 9 0 1% (1) (6%) Net other operating income (8) (6) (5) (5) (6) (1) 25% 3 (32%) Revenue 289 273 259 261 249 (11) (4%) (39) (14%) Expenses (179) (138) (175) (183) (167) 16 (9%) 12 (7%) Depreciation (9) (8) (7) (7) (11) (4) 55% (2) 19% Expenses and depreciation (188) (146) (182) (189) (178) 12 (6%) 10 (6%) Operating margin 101 127 77 71 72 1 1% (29) (29%) Net impairment losses (7) 3 4 36 (5) (41) - 2 (29%) EBIT 94 130 81 107 67 (40) (37%) (27) (29%) C/I ratio 65% 53% 70% 73% 71% 19
Retail banking operational data and volumes Operational data (in thousand) 3Q12 4Q12 1Q13 2Q13 3Q13 3Q13 vs. 2Q13 3Q13 vs. 3Q12 thous. % thous. % Current accounts 588 586 586 585 578 (7) (1%) (10) (2%) including operating accounts 181 181 178 178 165 (13) (7%) (16) (9%) Saving accounts 195 193 196 197 195 (2) (1%) 0 0% Credit cards 807 795 793 791 785 (6) (1%) (22) (3%) including co-branded cards 468 464 467 472 472 1 0% 4 1% Debit cards 425 418 428 454 427 (27) (6%) 2 0% including PayPass cards 363 365 382 413 389 (25) (6%) 26 7% Volumes (PLN million) 3Q12 4Q12 1Q13 2Q13 3Q13 3Q13 vs. 2Q13 3Q13 vs. 3Q12 PLN MM % PLN MM % Deposits 6,080 5,887 6,401 6,771 6,809 38 1% 729 12% Demand deposits 2,411 2,385 2,459 2,537 2,544 6 0% 133 6% Other deposits 3669 3,669 3501 3,501 3942 3,942 4233 4,233 4265 4,265 31 1% 595 16% including saving accounts 2,432 2,426 2,968 3,253 3,259 6 0% 826 34% Loans 5,239 5,260 5,180 5,244 5,225 (19) (0%) (15) (0%) Credit cards 2,161 2,150 2,038 2,084 2,114 30 1% (47) (2%) Cash loans 2,135 2,104 2,092 2,080 1,989 (91) (4%) (146) (7%) Mortgage loans 862 926 978 1,008 1,032 24 2% 170 20% 20